Hapag-Lloyd, a member of THE Alliance, says bookings have improved slightly, but remain below the levels of last year. Photo credit: Shutterstock.com.
The first sign that carriers are expecting weak demand to extend into the peak season will be seen this week when blank sailings will be announced as part of THE Alliance’s third quarter global network schedule.
“We will come out with a third quarter announcement this week on the structure of network services, but it will include blank sailings,” Rolf Habben Jansen, CEO of THE Alliance member Hapag-Lloyd, told reporters in a media briefing Tuesday. “We are making a lot of network changes to make it more stable and to optimize the network.”
As Europe and parts of North America begin to emerge from their two-month lockdowns to battle the coronavirus disease 2019 (COVID-19), Habben Jansen said cargo bookings have stabilized, but were still at “small double-digit percentages” below last year’s levels.
Hapag-Lloyd’s volume was down about 10 percent in the second quarter, which was in line with expectations from shipping analyst Clarksons, but Habben Jansen said he remained “cautiously optimistic” that recovery would begin in the third quarter.
“Based on what we can see today, it is very difficult to determine how long this will last — some weeks will look a little better, some weeks will be weaker,” he said. “I don’t think we are seeing a big rebound right now. We will see a little bit of restocking, and if we look out into the next few weeks, bookings still look fairly stable. If all of a sudden we see bookings dropping by 10 or 15 percent, that means we need to take out cost as well.”
Taking out costs means cutting capacity, although Habben Jansen gave no indication of whether the canceled capacity levels planned for the third quarter would match those of the second quarter.
Other members of THE Alliance are Ocean Network Express, HMM, and Yang Ming. No announcement of third quarter blank sailings has been made yet by the 2M Alliance of Maersk and Mediterranean Shipping Co., or by the Ocean Alliance of Cosco Shipping, OOCL, CMA CGM, and Evergreen.
Sea-Intelligence Maritime Consulting noted in its latest Sunday Spotlight that it was clear carriers would need to continue their blanking strategy into the third quarter.
“While it is understandable that one would like to have a glimmer of hope that we will see a pick-up by the Q3 peak-season, it appears ever more unlikely to happen in the short term,” the analyst said.
Carriers cancel capacity to cut costs
A total of 92 sailings have so far been canceled on Asia-Europe and Asia-Med since March 13, and more than 120 sailings on the Asia-US trades, according to Sea-Intelligence. While the extensive cuts in capacity have enabled carriers to hold off a rate slide, the blanked sailings have left little room for any spike in demand, leading to cargo rollovers as well as an increase in booking cancellations and container no-shows at ports in China.
“While we see that booking confirmations are going up, it remains a challenge that the number of no shows are very, very high,” Habben Jansen said. “There is a problem. No-shows have always been an issue, but on some trades these numbers have moved up to 30 to 35 percent. That is not great.”
The no-shows in China on the trans-Pacific trade have been especially high, something Peter Levesque, president of Ports America, said was due to US retailers canceling a large number of purchase orders, a main driver of the no-shows. Levesque told the JOC Uncharted webcast last week that no-shows for bookings were above 20 percent.
The booking cancellations and no-shows limit carriers’ ability to optimize capacity and make the complex matching of supply and demand challenging, which has led to Hapag-Lloyd and its alliance partners taking small steps toward bringing back sailings.
“When your revenue drops by several hundred million dollars a month, you have to take costs out,” Habben Jansen said. “It may have been too much on some trades and that is why we are putting capacity back, but on some trades we have not taken out enough. We are reinserting some services, especially into the Med where demand has strengthened, and will be coming out this week with a restructured network to North Europe.”
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